Flow patterns, liquid holdup, and frictional pressure gradient are three importance parameters to study the multiphase drilling fluid behavior. Although two-phase fluid flow is studied in detail for pipes, there exists a lack of information about aerated fluid flow behavior inside a wellbore. This study aims to identify the flow patterns of gasified fluids flowing inside a horizontal annulus, and to develop a method for measurement of liquid holdup by using the image processing techniques. Experiments have been conducted at Middle East Technical University (METU) Multiphase Flow Loop using air-water mixtures with various in-situ flow velocities. A digital high-speed camera is used for recording each test dynamically for the identification of flow patterns and the measurement of liquid holdup.